WORLD  TRADE  
ORGANIZATION  WT/TPR/S/157/Rev.1 
24 March 2006  
 
(06-1348) 
Trade Policy Review Body  
   
 
  
 
TRADE POLICY REVIEW 
 
Report by the Secretariat 
 
ISRAEL 
 
Revision 
 
 
 
 
This report, prepared for the third Trade Policy Review of Israel, has been drawn 
up by the WTO Secretariat on its own responsibility.  The Secretariat has, as 
required by the Agreement establishing  the Trade Policy Review Mechanism 
(Annex 3 of the Marrakesh Agreement Establishing the World Trade 
Organization), sought clarification from Israel on its trade policies and practices. 
 
Any technical questions arising from this report may be addressed to Mr. Arne 
Klau (tel: 022/739 57 06; fax: 022/739 57 65), Mr. Philippe Montfort 
(tel: +32(0)47823139) or Mr. Jacqu es Degbelo (tel: 022/739 55 83). 
 
Document WT/TPR/G/157 contains the policy statement submitted by  Israel. 
 
 
 
Note: This report is subject to restricted circ ulation and press embargo until the end of the first 
session of the meeting of the Trade Policy Review Body on Israel. Israel WT/TPR/S/157/Rev.1 
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CONTENTS 
 
Page 
SUMMARY OBSERVATIONS vii 
 (1) T HE ECONOMIC ENVIRONMENT  vii 
 (2) I NSTITUTIONAL FRAMEWORK  vii 
 (3) T RADE POLICY INSTRUMENTS  viii 
 (4) S ECTORAL POLICIES  ix 
 (5) T RADE POLICY AND TRADING PARTNERS  x 
I. ECONOMIC ENVIRONMENT 1 
 (1) M AJOR FEATURES OF THE ECONOMY  1 
 (2) R ECENT ECONOMIC DEVELOPMENTS  3 
 (3) T RADE PERFORMANCE AND INVESTMENT  6 
 (i) Trade performance 6 
 (ii) Foreign investment 7 
 (4) O UTLOOK  8 
II. TRADE AND INVESTMENT REGIMES 9 
 (1) I NSTITUTIONAL FRAMEWORK  9 
 (2) T RADE POLICY FORMULATION AND IMPLEMENTATION  9 
 (3) T RADE POLICY OBJECTIVES  10 
 (4) M AIN TRADE LAWS AND REGULATIONS  10 
 (5) I NVESTMENT REGIME  12 
 (6) T RADE AGREEMENTS  14 
 (i) World Trade Organization 14 
 (ii) Preferential trade agreements 15 
 (iii) Other arrangements 18 
III. TRADE POLICIES AND PRACTICES BY MEASURE 20 
(1) O VERVIEW  20 
(2) M EASURES DIRECTLY AFFECTING IMPORTS  20 
(i) Documentation and customs procedures 20 
(ii) Rules of origin 22 
(iii) Tariffs 22 
(iv) Other taxes and charges 28 (v) Import prohibitions, licensing, and authorization 29 
(vi) Contingency trade remedies 31 
(vii) Standards and other technical requirements 34 (viii) Other measures 37 
 (3) M
EASURES DIRECTLY AFFECTING EXPORTS  38 
(i) Registration and documentation 38 (ii) Export taxes, charges, and levies 38 
 
 WT/TPR/S/157/Rev.1 Trade Policy Review 
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Page 
(iii) Export prohibitions, re strictions, and licensing 38 
(iv) Export subsidies, and duty and tax concessions for exports 40 
(v) Export finance, insurance, and guarantees 40 (vi) Export promotion and marketing assistance 41 
 (4) M
EASURES AFFECTING PRODUCTION AND TRADE  41 
(i) Incentives 41 (ii) Competition policy and price controls 45 
(iii) Government procurement 48 
(iv) State-trading, state-owned enterprises, and privatization 50 (v) Intellectual property rights 51 
IV. TRADE POLICIES BY SECTOR 57 
 (1) I
NTRODUCTION  57 
 (2) A GRICULTURE  57 
 (i) Overview 57 
 (ii) Key subsectors 62 
 (3) M INING AND ENERGY  65 
 (i) Mining 65 
 (ii) Energy 66 
 (4) M ANUFACTURING  67 
 (i) Main features 67  (ii) High-tech industries 70 
 (iii) Traditional industries 72 
 (5) S
ERVICES  73 
 (i) Main features 73 
 (ii) Financial services 74 
 (iii) Transportation 82  (iv) Telecommunications and postal services 84 
 (v) Tourism 87 
REFERENCES   89 
APPENDIX TABLES  91 
 
  Israel WT/TPR/S/157/Rev.1 
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CHARTS 
Page 
I. ECONOMIC ENVIRONMENT 
I.1 Fiscal position, 1999-04 2 
 
III. TRADE POLICIES AND PRACTICES BY MEASURE 
III.1 Breakdown of applied MFN tariffs, 2005 23 
III.2 Tariff escalation by ISIC 2-digit industry, 2005 26 
III.3 Import licensing by HS section, 2005 32 
 IV. TRADE POLICIES BY SECTOR 
IV.1 Domestic support for agriculture, 1997-03 60 
IV.2 Tariffs on manufactured products, 2005 70 
TABLES 
I. ECONOMIC ENVIRONMENT 
I.1 Israel at a glance, 1994, and 1999-04 1 
I.2 Selected economic indicators, 1994-04 3 
I.3 Foreign investment, 1998-04   7 
 
II. TRADE AND INVESTMENT REGIMES 
II.1 Israel's main trade-rela ted legislation, June 2005 11 
II.2 Rates of taxation applicable to various types of investors 13 
II.3 Israel's notifications under the WTO Agreements, November 2005 14 
II.4 Israel's preferential tr ade agreements, June 2005 16 
 
III. TRADE POLICIES AND PRACTICES BY MEASURE 
III.1 Preferential rules of origin, 2005 22 
III.2 Overview of MFN tariffs in Israel, 2000-05 23 
III.3 Summary analysis of Israel's MFN tariff, 2005 24 
III.4 Seasonal tariffs in Israel, 2005 25 III.5 Duty concessions and exemptions, 2005 27 
III.6 "Safeguard" levies, August 2005 28 
III.7 Taxes on imported and domestic goods and services, September 2005 29 III.8 Import prohibitions, November 2005 30 
III.9 Equivalence of Israeli standards w ith international standards, April 2005 35 
III.10 Goods requiring licence upon export, 2005 38 III.11 Goods subject to export authorization, 2005 39 
III.12 Key features of Israel's competition law 45 
III.13 Decisions on merger applications, 1999-04 46 
III.14 Regulated prices in the consumer price index, 1999 and May 2005 47 
III.15 Key features of Israel's government procurement provisions 49 III.16 Exports restricted to state-trading agencies, 2005 50 
 
  
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III.17 Israel's status in international IPR-related agreements, conventions, and treaties 52 
III.18 Summary of intellectual property protection in Israel, April 2005 53 III.19 Registration of intellectual property, 1999-04 55 
 
IV. TRADE POLICIES BY SECTOR 
IV.1 Indicators of agricultural production, 1999-04 58 
IV.2 Distribution of agricultural production, by category and purpose, 2004 58 
IV.3 Agricultural exports, 1990-04 59 IV.4 Actual exports and export subsidies commitments, 1998-04 61 
IV.5 Main crop production, 2000-04 63 
IV.6 Main livestock production, 2000-03 64 IV.7 Manufactured production by industry (excluding diamonds), 1999-04 68 
IV.8 Manufactured exports by industry (excluding diamonds), 1990-04 69 
IV.9 Evolution of the electrical and electronic equipment industries, 1998-04 71 IV.10 Selected tariffs for the food, beverages, and tobacco industries, 1999 and 2005 73 
IV.11 Services and main subsectors, 2000, and 2002-04 74 
IV.12 Overview of the Israeli capital market, August 2005 80 
IV.13 Overview of the tourism subsector, 1995-04 87 
 
APPENDIX TABLES 
I. ECONOMIC ENVIRONMENT 
AI.1 Balance of payments, 1995-04 93 
AI.2 Exports by groups of products, 1999-04 94 
AI.3 Imports by groups of products, 1999-04 95 
AI.4 Exports by destination, 1999-04 96 AI.5 Imports by origin, 1999-04 97 
III. TRADE POLICIES AND PRACTICES BY MEASURE 
AIII.1 Applied MFN tariff averages by HS2, 2005 98 
AIII.2 Products with applied MFN tariff rates higher than the bound rates 102 
AIII.3 Products for which the MFN rate may be higher than the final bound rate 103 
AIII.4 Imports requiring a licence, June 2005 105 AIII.5 Tariff quotas on agricultural products within the framework of preferen tial trade agreements 107 
AIII.6 Government owned companies, November 2005 113 
IV. TRADE POLICIES BY SECTOR AIV.1 Tariff quotas on imports, November 2005 115 
AIV.2 Selected indicators of the Israeli industrial sector, 1998, 2002, and 2004 117 
AIV.3 Applied MFN tariffs, by ISIC Rev.2 category, 2005 118 
AIV.4 Balance of services, 1995-04 121 
AIV.5 Summary of Israel's specifi c commitments in services 122 
 
 Israel WT/TPR/S/157/Rev.1 
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SUMMARY OBSERVATIONS 
(1) T HE ECONOMIC ENVIRONMENT  
1. The 2003 Economic Recovery Plan 
has contributed to the recovery of Israel's 
economy from its recent slowdown;  its real 
GDP grew by 4.6% in 2004, and by 4.8% (annualized) during the first nine months of 2005.  Israel has successf ully maintained its 
inflation on a downward path (at low rates 
since the mid 1990s, after more than two 
decades of high inflation).  Its external current account has improved and its gross external debt remains manageable.  Following the abolition of all foreign exchange controls, Israel's exchange regime was reclassified to 
"independently floating" in January 2004, 
from the category "exchange rate within crawling bands". 
2. Ambitious structural reforms are 
being implemented with a view to reducing 
extensive state intervention and enhancing 
competition in selected industries.  Subject to continued improvement of the security situation and a favourable global environment, the ongoing reforms are expected to build the fo undation for sustained 
economic performance by Israel during the 
coming years.  Nonetheless, unemployment remains relatively high, at around 9%, as is the fiscal deficit (after foreign grants), at between 3.8% and 5.6% of GDP, mainly due 
to public expenditures for security and social 
purposes.   
3.   Israel's economic growth is mainly 
export led and rests largely on innovation.   Israel ranks first worldwide in terms of the 
ratio of research and development investment 
to GDP, second in terms of the quality of education, and third in terms of entrepreneurship.  Consequently (and also as a result of increased competition from imports of traditional labour-intensive products), its 
production pattern has shifted towards high-
technology goods and services, intensive in skilled labour, with an overall decline in manufacturing and a downward trend in the already limited agricultural production.  
Mining and quarrying remain marginal.   
4. Israel depends heavily on 
international trade (nearly 90% of its GDP).  
Its exports consist prim arily of manufactured 
goods, in particular high-tech products.  Its imports are also dominated by manufactured goods (80% of merchandise imports), mainly machinery and transport equipment, and other 
semi-manufactures.  Imports of fuel have 
increased steadily, owing to the upward evolution of its world price. The geopolitical situation in the Middle East has seriously impeded trade between Israel and its neighbours.  As a result, Israel’s main trading 
partners remain the European Union and the 
United States.  Nonetheless, in recent years, Asia has also become a major source of Israel's imports. 
(2) I
NSTITUTIONAL FRAMEWORK  
5. Israel's overall institutional 
framework for trade policy formulation and implementation has remained broadly unchanged since its last TPR in 1999.  The Ministry of Industry, Trade and Labor (MOITAL), through its Foreign Trade 
Administration, has responsibility in this 
regard.  Other departments, as well as interministerial committees, may be involved, depending on the subject.  Consultations with the private sector are conducted through 
various associations and forums.   
6. A contracting party to the GATT since 
1962 and a WTO Member since 1995, Israel is an active participant in the multilateral trading system.  It is a signatory to the 
Plurilateral Agreement on Government 
Procurement and to the 1997 Information Technology Agreement.  Israel currently accords at least MFN treatment to all WTO Members.  In the ongoing multilateral trade negotiations, Israel supports ambitious plans 
for tariff reductions on non-agricultural goods 
and for further multilateral liberalization in services.  On agriculture, Israel supports the view that non-trade concerns should be an integral part of any future multilateral WT/TPR/S/157/Rev.1 Trade Policy Review 
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agreement.    Israel has not been a defendant 
or complainant in any dispute under the WTO.  It has, however, reserved third-party rights in three cases since its last TPR. 
7. Israel has continued to expand the 
coverage of its bilateral free-trade agreements, through protocols to existing agreements and the conclusion of new agreements.  The protocols provide for further 
gradual market access improvements for 
agricultural goods.  As a result, most of Israel's trade is currently conducted under various preferential agreements, with Bulgaria, Mexico, and Romania (new agreements), and Canada, EFTA, the EU, 
Jordan, Turkey, and the United States.  
Moreover, with a view to strengthening regional economic cooperation, Israel has concluded agreements with Egypt and Jordan under the umbrella of its agreement with the 
U.S.  Israel's 1994 Protocol on Economic 
Relations with the Palestine Liberation Organization has remained unchanged. 
8. Israel has a generally liberal 
investment regime, with most activities open to private foreign and national investment.  The 
main exception is some postal and telegraph 
services.  Foreign ownership limitations are in place in international fixed telecommunication 
services and tourism.  Israel encourages both local and foreign investment by offering a 
wide range of incentives and benefits,  
including grants, tax incentives (rebate on profit tax), research and development support, wage financing, and training support.  The Government provides foreign-owned 
companies with enhanced incentives, thereby 
discriminating against Israeli-owned companies.   
(3) T
RADE POLICY INSTRUMENTS  
9. Israel has bound some 76% of its tariff 
lines, including all agricultural lines  (WTO 
definition)  and some 73% of non-agricultural 
items.  Bound tariff rates range from zero to 560% on agricultural goods, and from zero to 170% on non-agricultural goods. 10. In 2005, Israel's average applied MFN 
tariff was 8.9%, down from 10.8% in 2000.  MFN tariff rates on non-agricultural products (WTO definition) are generally lower (5.1% 
on average), with the highest rates (up to 
34.4%) on fish and fishery products, and textiles and clothing.  Applied MFN tariffs on agricultural products remain high, with an average tariff of 32.9%, and rates vary 
considerably among pro duct groups.  As at 
October 2005, the MFN applied tariffs on 11 lines at the HS eight-digit level exceed bound tariffs.  Moreover, a potential difficulty is that some applied MFN tariffs are non-ad valorem.   
11. Goods imported th rough maritime 
ports are subject to a wharfage fee of 1.02%.  
Some items, mainly edible oils, are subject to a tariff surcharge, although Israel has bound all other duties and charges at zero.  Internal indirect taxes consist of a 16.5% VAT, a 5% to 
20% purchase tax on a number of "luxury 
goods", and various excise taxes;  these apply equally to imported and domestic goods.  Since 1999, Israel has initiated eight anti-dumping actions and imposed definitive anti-dumping measures in five cases.  In June 
2005, Israel amended its legislation on 
contingency measures in order to bring it into conformity with the WTO Agreements on Anti-Dumping, and Subsidies and Countervailing Measures.  No countervailing or safeguard 
measures have been imposed by Israel since 
its last TPR. 
12. In July 2003, Israel lifted its general 
prohibition on imports  from WTO Members 
that have no diplomatic relations with it or 
prohibit imports from Israel.  The authorities 
hope that this unilateral step will be appreciated and reciprocated by those countries.  Nonetheless, trade (export and import) prohibitions remain in place for Iran, Lebanon, and Syria.  A licensing mechanism is 
maintained on imports from eight non-WTO 
Members. Import licences are also in place for security and safety reasons, and for purposes of tariff quota management.   
13. Israel maintains MFN tariff quotas on 
twelve agricultural product groups, although Israel WT/TPR/S/157/Rev.1 
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most of the quotas are redundant as the 
applied MFN tariffs on most of the products are lower than the in-quota tariffs.  In addition, most of Israel's preferential trade 
agreements include provisions on tariff quotas 
on agricultural goods.  Israel's technical regulations are increasingly based on internationally accepted standards.  Since its last TPR in 1999, Israel has removed or made 
voluntary more than 200 technical 
regulations, deemed non-tariff trade barriers, mostly on food products. 
14. A wide range of products is subject to 
export control and licensing, mainly for sanitary and quality control.  Israel continues 
to grant export subsidies, mainly on cut 
flowers and citrus fruits;  a public export insurance scheme is in place.  Israel also grants substantial state support for the promotion of research and development, small 
and medium-sized enterprises (SMEs), and 
regional development;  state aid has gradually shifted away from regional development and R&D to SMEs. 
15. Israel's public procurement 
regulations award price preferences to local 
suppliers with the exception of purchases 
covered by the WTO Agreement on Government Procurement.  Competition rules provide that all restrictive arrangements must be registered and approved.  An ambitious 
privatization plan aims to reduce state 
ownership, which remains extensive in the economy.  Israel has amended its IPR legislation  and strengthened enforcement measures. 
(4) S
ECTORAL POLICIES  
16.   Israel's services sector has gained in 
importance, accounting for almost 77% of NDP in 2004, up from about 72% in 1998, and for 76% of employment, up from 74%.  This performance is mainly due to a series of 
reforms that led to the disengagement of the 
Government from certain activities.  In particular, the national airline company (El Al) has been privatized, and telecommunications services are being liberalized, with a gradual reduction of state 
involvement and of the dominant position of the Government-owned telephone operator, Bezeq.  Nonetheless, financial services remain 
dominated by few companies.  Israel's specific 
commitments under the GATS cover 49 activities out of 161;  Israel is a signatory to the Fourth Protocol (on telecommunications services) and the Fifth Protocol (on financial 
services) to the GATS.  Under Article II of the 
GATS, Israel has listed MFN exemptions on film, video and television programme co-production and distribution; and banking.   
17.  Marked by asymmetric developments 
between high-tech and traditional industries, 
the manufacturing sector has contracted, 
accounting for about 14% of NDP and 16% of total employment in 2004, down from nearly 18% of each in 2000.  This performance reflects an export-led growth of the high-tech 
industry, insufficient to offset the sharp decline 
in traditional industries, largely due to increased competition from countries with abundant and cheap labour .  As a result, the 
manufacturing sector has recorded a shift towards the production of goods intensive in 
high technology and skilled labour, two main 
assets of the Israeli economy. 
18.  Most manufactured imports (ISIC 
Revision 2 definition) enter Israel under preferential trade agreements (mostly duty 
free).  However, the average applied MFN 
tariff rate of 7.3% on these imports hides relatively high tariffs (of up to 340%) on, inter alia, food, beverages, clothing, footwear, and plastics.  Tariff protection is in general higher 
for traditional industries than for the high-
performing high-tech industries. A large number of manufactured products are also subject to strict technical regulations.  The manufacturing sector is the main beneficiary of state aid (a wide range of investment 
incentives), with special attention to high-tech 
companies, small and medium-sized enterprises, and R&D activities. 
19.  In spite of severe constraints, such as 
restricted access to water and the 
predominance of desert areas, Israel still WT/TPR/S/157/Rev.1 Trade Policy Review 
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maintains a certain level of agricultural 
production (around 2% of NDP), albeit at relatively high cost, despite the advanced and performing agri-technology used.  In 
consequence, the sector is largely supported 
through various government interventions, including subsidies and tariff protection, mainly in favour of commodities such as dairy products, fruit, and vegetables.  The average 
applied MFN tariff in agriculture is 41%, with 
high tariffs of up to 560% on certain products.  Nonetheless, domestic support to agriculture, as measured by the current Total Aggregate Measurement of Support (AMS), as well as export subsidies actually granted by the 
Government, has remained below Israel's 
WTO commitments. 
20. Mining and quarrying activities in 
Israel remain marginal, and tariff protection for the sector is low; the average applied MFN 
rate is 0.2% in 2005.  The sources of energy in 
Israel are primarily fossil fuels (especially crude oil), natural gas produced from local offshore deposits, and solar energy.  Domestic production of crude oil is insignificant and most resources to meet Israel's energy needs 
are imported.  The energy subsector remains 
largely state-owned and heavily regulated, but steps are being taken towards its gradual liberalization. 
(5) T
RADE POLICY AND TRADING 
 P ARTNERS  
21. Israel has a long-standing 
commitment to the multilateral trading system,  but it also participates actively in various  
free-trade agreements.  This dual strategy reflects its high dependence on trade, with comparative advantages in selected areas.  Its 
implementation has resulted in an Israeli 
market that is open for non-agricultural products (on a preferential and, to a lesser extent, MFN basis) and somewhat protected for agricultural goods.   
22. Continued structural and trade 
reforms, including further privatization, MFN tariff reductions (on agr icultural goods in 
particular), and reduction of the gap between bound and applied tariff rates, would contribute to better resource allocation in 
Israel's economy, and enhance predictability 
and transparency of the trade regime.    Such reforms, together with a move to ad valorem tariffs on agricultural goods, would stabilize the level of protection in this sector and ensure 
better compliance by Israel with its binding 
commitments. 
23. Subject to a favourable global 
environment, Israel's economy is expected to perform well in the mid-term.  The reforms, through their impact on resource allocation, 
should enhance Israel's economic performance 
and contribute to reducing unemployment.  Trading partners could help by ensuring that their markets are fully open to goods and services produced in Israel.